Helping your clients improve their credit control

Accountants often see the warning signs of poor credit control before their clients recognise there is a problem. When preparing accounts or reviewing management information, you may notice that debtor days are increasing, a higher bad debt provision is needed, or one significant customer is consistently paying later and later.

These figures tell you what has already happened, but they can also raise important questions about what might happen next. Rather than simply reporting the numbers, they provide an opportunity to start a wider conversation about how the client manages customer credit risk and whether there could be a growing issue on the horizon. By looking beyond the figures, accountants can help clients identify potential problems earlier, improve their credit control processes and reduce the risk of cash flow issues or bad debt as the business grows.

Here are four practical ways accountants can use the information they already see in their clients' accounts to identify potential credit control issues, start more valuable conversations and help clients manage customer risk more effectively.

1. Spot the warning signs

Credit control problems often become visible in the accounts. Look for:

• Increasing debtor days

• Growing aged debt

• Rising bad debt provisions

• Large balances concentrated amongst a few customers

• Cashflow deteriorating despite profitable trading

• Increased use of overdrafts or working capital facilities

These are not simply accounting issues. They are prompts for a wider commercial conversation about how they determine how much credit to give to customers, and the processes around credit control. 

Some businesses set a credit limit when a customer first comes on board, others have a standard amount. Most then rarely review it. Others rely on relationships or historic payment behaviour rather than regularly checking whether that customer's financial position has changed. As the client grows, that becomes increasingly difficult to manage manually. At Capitalise, we have seen that once a business has 50 or more active customers, manually tracking changes in customer risk can become particularly challenging.

2. Move the conversation from chasing debt, to preventing it

Good credit control is not simply about chasing overdue invoices. It starts before the sale is made. Encourage your client to have a clear process that covers:

• Credit checking customers before offering terms

• Setting appropriate credit limits

• Regular reviews of existing customers

• Clear payment terms

• Prompt invoice reminders

• Escalation when payments become overdue

A customer which was financially strong 12 months ago may not be today. Regular monitoring means your client can respond to a deterioration in credit risk before it turns into a bad debt. You can use our Credit Management Compliance Checklist to support this conversation.

3. Introduce Credit Risk Manager to monitor current data and save time

For businesses with a growing customer base, maintaining this process manually, or through multiple platforms, can become increasingly time-consuming. Credit Risk Manager connects with Xero, QuickBooks or Sage and brings outstanding invoices together with the credit risk profile of each customer. Clients can receive alerts when risk changes, review credit limits and identify where outstanding invoices may require particular attention. 

After many requests, we’ve also now increased Credit Risk Manager's monitoring capacity to up to 1,000 companies. This makes it suitable for clients with much larger customer bases, where manually checking and tracking hundreds of customers would be impractical. For accountants, it provides a practical way to help clients build a more proactive approach to credit control, regardless of whether they are managing ten customers or one thousand.

4. Turn credit control into wider strategic conversations

You can turn a conversation about credit control into a larger piece of work around strategic intentions and their commercial processes. Is rapid growth creating working capital pressure? Is too much revenue concentrated with financially vulnerable customers? Do they need additional funding to bridge a cash flow gap? How resilient is the business if overheads of supplier costs increase? That is the bigger opportunity for accountants.

Next steps you can take:

During accounts preparation, bring in a process to flag increasing debtor days or bad debts and raise it at the next client discussion. Ask how the client manages customer credit risk, both at the start of a new relationship and then as part of their ongoing processes. 

From there, you can help identify where changes are needed and support the client in putting those processes in place. Credit Risk Manager gives you a practical tool to support that conversation, whether your client has ten customers, one hundred or now up to one thousand.

Speak to your usual Capitalise contact to find out how you can introduce Credit Risk Manager to your clients, or email partner.support@capitalise.com.